PRIDCO, Economic Development Administration, Mayaguez, San Juan, tax exemptions
Over the course of the 1980s and 1990s, manufacturing’s portion of the island’s labor force declined from 20 percent to 15 percent by 1999. Nevertheless, manufacturing produced in 1999 about $26 billion, which amounted to 70 percent of the GDP. In terms of employment, one of Puerto Rico’s leading manufacturing industries is apparel making. A modern apparel industry evolved from a small-scale labor-intensive needlework industry of the 1940s. By the 1990s most apparel plants were branches of mainland U.S. firms. San Juan and Mayaguez are the leading centers for making clothing. Large numbers of workers also produce chemicals, electronic equipment, and processed foods. Other major manufactures include pharmaceuticals, industrial machinery, printed materials, rubber and plastics, metal items, furniture and fixtures, and leather products.
Since the 1940s the government has encouraged manufacturing by offering incentives such as tax exemptions, loans, and research assistance. The leading government agency for encouraging industrial development was the Economic Development Administration, created in 1950 and generally known as Fomento (Spanish for “development”). Fomento’s mandate was to attract manufacturers to the island. To carry this out, Fomento sold or leased plants on favorable terms. In addition, the government waived business income tax dues for several years. Many large American manufacturing companies established plants in Puerto Rico, attracted by tax benefits and wages that were lower than on the mainland. In the 1990s the Puerto Rican Industrial Development Company (PRIDCO), a subsidiary of Fomento, became responsible for the industrial development of Puerto Rico.
In 1996, as part of budgetary cutbacks on the mainland, the U.S. Congress voted to eliminate over a ten-year period the tax incentives for American companies investing in businesses in Puerto Rico. To counteract the economic losses caused by the phase-out, the Puerto Rican government established a series of local tax incentives to keep or attract new companies to the island. These included a maximum 7 percent business income tax rate, tax incentives for research and development, and deductions for the costs of job training.
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